Prieur’s readings (November 24, 2009)

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy.

• Gillian Tett (Financial Times): Could sovereign debt be the new subprime? November 22, 2009.
I hope that the current calm in sovereign debt markets does not lull politicians into thinking that they can indefinitely avoid the need to take difficult fiscal choices. For if they do, those “safe” government bonds might start to look considerably less secure – not just to bankers, but to everybody.

• National Association for Business Economics: Recovery soon to lose “jobless” label, November 23, 2009.
Reaffirming last month’s call that the Great Recession is over, NABE panelists have marked up their predictions for economic growth in 2010 and expect performance to exceed its long-term trend. “While the recovery has been jobless so far, that should soon change. Within the next few months, companies should be adding instead of cutting jobs,” said NABE President Lynn Reaser,chief economist at Point Loma Nazarene University. Panelists predict a relatively sluggish consumer upturn but look for a sizable housing rebound, low inflation, and further rise in stock prices. Importantly, panelists are mostly (though not entirely) optimistic that the Federal Reserve’s policies will not lead to higher inflation. At the same time, NABE panelists are “extremely” concerned about high federal deficits over the next five years.

• Vitaliy Katsenelson (contrarian Edge): Our steroidally challenged economy, November 18, 2009.
Stimulus creates an appearance of stability and growth, but a lot of it is teetering on a very weak foundation of government intervention. Investors must distinguish between what is real and what is not; in this environment, investment success will not only depend on what stocks you own but also on the ones you don’t – stock selection is important. The hopes that we’ll transition soon from government steroiding back to an economy running on its own are overoptimistic; there is just too much stimulus in the economy for that to happen. The detox process from the massive consumption of steroids will not be a smooth and painless experience. This transition will be slow and rocky, as today’s stimulus wears off and we hit the wall in this economic marathon.

• Chris Giles: (Financial Times): Recession to leave permanent scars, November 23, 2009.
“The turnround started in January and we haven’t looked back” – that may be one salesman’s view, but economists are charting the damage done by recession.

• Mark DeCambre (New York Post): Jamie Dimon seen as good fit for Treasury, November 23, 2009.
As support for Treasury Secretary Timothy Geithner wanes on Capitol Hill amid frustration with the Obama administration’s handling of the economy, JPMorgan Chase CEO Jamie Dimon is emerging as a potential replacement. Sources tell The Post that a number of policy makers have begun mentioning Dimon as a successor to Geithner, whose standing in Washington has suffered because of the country’s high unemployment rate, the weakness of the dollar, the slow pace of the recovery and the government’s mounting deficit.

• Julie Fox (TIME): Riding the waves of irrational behavior, November 30, 2009.
When times are good in financial markets, we’re willing to convince ourselves that they’re good for a reason. The fundamentals are great, the experts tell us. Innovation is creating new opportunities and new wealth. We’ve gotten better at managing risk. After a few years of market trouble, though, the tone changes. “When the trend is sideways to down, they think the machine is broken,” says Robert Prechter. Jeez, it can’t be us.”

• Mason Levinson (Bloomberg): Harvard poker pro says Texas Hold ‘Em can teach traders to fold, November 20, 2009.
Brandon Adams, who teaches behavioral finance at Harvard University’s Department of Economics, says some of the best candidates for Wall Street trading jobs are the professional card players at FullTiltPoker.com and similar Web sites. “They’ve essentially been the survivors in the system, a very difficult system where 95% of people lose money,” the 30-year-old Adams, who plays at the site, said in a telephone interview. “Anyone smart enough and disciplined enough to survive that system is probably going to do very well in the trading world.”

• William Cohan (Financial Times): Goldman Sachs – the case for the defence, November 23, 2009.
Despite all the criticism, the bank’s judgment should be applauded. Thankfully, its executives actually lose sleep over the possibility of losing their shareholders’ and creditors’ money.

• Danie Gross (Slate): Shanghai Manners, November 19, 2009.
Chinese are just like New Yorkers. They can’t stop talking about real estate.